Third-party litigation financing presently plays a role in class actions and personal injury cases in Canada. After the event (ATE) insurance is increasingly common for plaintiffs to obtain in pursuing a personal injury case. Such insurance covers the expense that unsuccessful party has to pay towards the successful party’s legal fees. This is invaluable for access to justice for personal injury complainants who may be at risk of losing their homes if they are unsuccessful and ordered to pay the successful party’s legal fees. Such funding also seems appropriate in the class action setting where individually the plaintiffs would not see legal action as a viable means to remedying their claims. Used properly such third party financing and insurance lessens the consequences that an individual plaintiff may face if they decide to pursue their rights in the legal arena, thereby supporting access to justice. This type of funding does not affect the court’s ability to act in its rightful role in weeding out trivial or unmeritorious claims. Costs consequences are appropriate considerations in settlement negotiations, but they should not go so far as to prevent the individual claimant from considering litigating their claims.

Where third party litigation financing finds merit in permitting individuals to participate in litigation when otherwise the financial risks of losing would prevent them, what is the rationale for such funding in commercial litigation? Does the policy rationale of promoting access to justice apply in the commercial realm?

Outside funding can play a role in two ways for commercial litigation matters: it can fund the legal dispute itself, and it can insure against the litigation risk exposure. One interesting consideration is the relationship between third party litigation funding, litigation risk, and contingency fee arrangements. Contingency fee arrangements are common in personal injury, but much less so in commercial litigation. But, if third party funding develops in the commercial litigation field, will contingency fee arrangements begin to increase? While presently not widely used, contingency fees, unavailable in criminal, quasi-criminal and family law matters, are not prohibited in commercial disputes.

The concerns regarding third party litigation financing can be mitigated through the use of competent and ethical lawyering. A commitment to solicitor-client privilege, appreciation for the merits of settlement, and discussing the risks of litigation beyond the financial consequences, such as the time demands, effect on reputation, and precedential effects of judgments. Further, the courts have developed guidelines for external funding arrangements in the class action context, where judicial approval is required, that can be used to shape arrangements that keep the focus of the litigation on dispute resolution and not profit.

Moving forward, where third party funding arrangements can be agreed to which keep the financier a non-party to the dispute, there will likely be an increasing role for them in commercial litigation.

“This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.”